he company Ciclista Inc., manufacturer of bicycles, is preparing its financial statements for December 31, 2020. The company has identified the following legal situations that can be classified as contingencies.

1. The company has discovered that a type of bicycle that they began to manufacture and sell in 2020 has some defects in the handlebars. The company has sent a statement to newspapers and magazines offering to replace the handlebars. The company estimates a cost of $ 400,000 for these repairs (This is recorded as a separate entry from Expense). No legal charges have been filed for damages caused by the defect. The company considers that there are

2. The company maintains an incinerator in the back of a warehouse that is used to burn cardboard boxes received in inventory shipments. In September 2020, the state environmental protection agency filed a lawsuit against the company for contamination. The company hopes to stop using the incinerator and start recycling. However, his lawyers consider it probable (MORE LIKE THAN NOT IN IFRS, and means PROBABLE IN US GAAP) that a fine between $ 40,000 and $ 60,000 will be awarded against the company. Lawyers cannot predict the exact amount. Required:

A. Indicate how the accounting treatment would be under US GAAP and IFRS in both situations. Post journal entries when necessary.